Enron And The Sarbanes-Oxley Act Of 2002 (SOX)

Impact of Fraud

Fraud is a tempting crime to commit because the perpetrator rationalizes that he or she is only stealing from the company. However, the effects caused by fraud impact more than just the higher paid executives. For example, the company raises prices to recuperate the losses from the fraud. Increasing prices directly affects consumerism as customers are less prone to purchasing a product if there are other substitutions available to them at lower costs. Reduction in sales decreases revenues, which inevitably hurts the company’s financial position. In addition, companies recuperate losses by decreasing salaries expense by decreasing employee wages or eliminating jobs altogether. Decreasing salaries expense increases opportunities

They participated in various energy ventures like gas, oil, and electricity as well as pulp, paper, and communications. Prior to Enron’s bankruptcy, the oil and gas industries were deregulated and companies were provided with more opportunities to commit fraud. Enron became involved in fraud when executives embezzled funds and the accounting department manipulated financial data. The company went bankrupt in 2001 and the Sarbanes-Oxley Act of 2002 (SOX) was passed a year later. The SOX was drafted to curb corporate fraud and to increase investor protections. The SOX was responsible for the improvement of disclosure accuracy and reliability by strengthening corporate governance rules and whistle-blower protections as well as increasing penalties for fraud perpetrators. In addition, the SOX created the Public Company Accounting Oversight Board (PCAOB), which continued to monitor corporate accounting practices. To prevent future fraud, SOX changed the relationship between the company and its auditors as well as made it mandatory for auditors to complete year-end reports expressing opinions on the company’s financial reporting and effectiveness of internal controls (Sarbanes-Oxley Act 2012) (Peavler

The financial crisis affected the investment banking industry, mortgage lenders, and commercial banks. In addition, the American auto industry was impacted due to heavy reliance on credit. To resolve the financial crisis, the United States government issued federal bailouts and drafted the Frank-Dodd Wall Street Reform and Consumer Protection Act. The legislation promoted financial stability and protected the American consumer. The Frank-Dodd Wall Street Reform Act aimed to promote financial stability by requiring financial institutions to hold a portion of the credit risk when securing collateral and giving more power to the Federal Reserve in monitoring non-bank entities. It also created the Orderly Liquidation Authority to protect taxpayers from heavy losses by saddling excess liquidation costs. The Consumer Protection Act created the Bureau of Consumer Financial Protection to enforce financial consumer protection laws and to regulate simple bank transactions. In addition, borrowers received protection against expensive loans as loan originators were banned from receiving incentives for steering (Goodwin 2010) (Dodd-Frank Wall Street Reform and Consumer Protection Act 2016) (Havermann